The central bank said it will spend $40 billion a month buying mortgage-backed securities

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Fed Chair Ben Bernanke held a news conference Thursday to discuss the central bank's plans for new stimulus for the U.S. economy.

Updated at 6:44 PM EDT on Thursday, Sep 13, 2012

The stock market staged a huge rally Thursday after investors finally got the aggressive economic help they wanted from the Federal Reserve. The Dow Jones industrial average spiked almost 240 points.

The gain pushed the Dow above 13,500 for the first time since December 2007, the beginning of the Great Recession, and to within about 600 points of its all-time high.

In an open-ended step, the Fed said it would spend $40 billion a month to purchase mortgage securities because the economy is too weak to reduce high unemployment.

The central bank also extended its pledge of super-low interest rates into 2015, and promised to keep "highly accommodative" monetary policy in place even after the economic recovery strengthens.

"The idea is to quicken the recovery," Fed Chairman Ben Bernanke said at a news conference Thursday. But he made clear he thinks the economy will need the Fed's intervention even after the recovery strengthens.

"We're not going to rush to begin to tighten policy. We're going to give it some time to make sure the recovery is well established," he said,

Although some lawmakers slammed the new measures, at his conference Bernanke defended the bond-buying program, saying it would help reduce the deficit, and assured reporters that long-term inflation expectations were "quite stable."

The announced stimulus was the package known as QE3 — a third round of quantitative easing, in market-speak. And it was just what investors were hoping for.

"They're saying that the punch bowl, the fuel for the economy, isn't going away — it's going to be here as long as you need it," said Tony Fratto, a former aide to President George W. Bush and managing partner at Hamilton Place Strategies, a policy consulting firm in Washington.

Just after 2:30 p.m. EDT, the Dow was up 212 points at 13,545. It gained as much as 239.98 points earlier in the day.

The broader Standard & Poor's 500 index was up 24 points at 1,461, and the Nasdaq composite index was up 49 points at 3,163.

David Abuaf, chief investment officer at Hefty Wealth Partners, said the Fed package was what the economy needed. He said that he expects investors to keep shifting from safer assets like government bonds to stocks. That could push stock prices higher, kicking off a cycle of increased wealth and increased spending.

"People will feel more confident, consumers will buy more goods and GDP growth will increase," he said, referring to the gross domestic product, or economic output.

The stock market had already enjoyed a summer rally, in part because investors were betting on more Fed action. The Dow has climbed about 1,100 points since the start of June.

Still, stocks spiked Thursday in industries across the economy. Materials companies, which tend to do well when the economy picks up, enjoyed the biggest gain — 2.6 percent as a group. Bank stocks also surged.

This is the third round of bond-buying by the Fed since the financial crisis struck in the fall of 2008. The goal is to lower long-term interest rates, get people to borrow and spend more and push them into stocks.

If history is any guide, stocks could rally a bit more. In the three months following March 2009, when the Fed said it would expand its first round of buying, the S&P 500 rose 18 percent. In the three months after the central bank hinted at a second round of buying in August 2010, the S&P rose 14 percent.

Some economists and investors have warned that the bond-buying will have a limited impact because interest rates are already near record lows.

The yield on the benchmark 10-year Treasury note fell slightly to 1.78 percent from 1.79 percent late Wednesday. It had spiked to 1.84 percent as investors sold bonds after the Fed announcement.

The dollar fell slightly against major currencies, and the price of gold climbed to its highest level since February — $1,767 an ounce, a gain of $34, or almost 2 percent.

Investors kept an eye on turmoil in the Middle East. Protesters stormed the U.S. Embassy compound in Yemen's capital earlier in the day, and there was violence around the U.S. mission in Cairo. The U.S. ambassador to Libya was killed Tuesday.

In other news Thursday, the Labor Department reported that the number of people seeking unemployment benefits jumped last week to the highest level in two months, though the figures were skewed in part by Hurricane Isaac.

The figures come after a disappointing jobs report last week. Employers added only 96,000 jobs in August, far below the average 226,000 a month added in the January-March quarter.

The government also said that wholesale prices rose 1.7 percent in August, the most in three years. They were driven up by higher costs for gas and food. Removing the impact of energy and food, however, the increase in prices has been mild.